Thursday, January 17, 2008

Change. It has become this year’s political mantra. Maybe it will, or maybe, it won’t trump Experience.

With change dominating the presidential campaigns, I’ve been thinking about change too. Based on my experience —oops, I am burdened with some of that, almost 35 years worth, to pick a popular figure— communications law and policy is an area ripe for change. Of course, like Rudy Giuliani is fond saying in the debates, there is good change and bad change.

I am under no illusions that the presidential candidates are going to start talking anytime soon, or ever, about the nitty-gritty of communications policy. But perhaps as the campaign progresses, we will hear more about their views concerning general regulatory philosophy, and issues such as broadband policy. How these issues are handled is important to the future of the nation’s economy.

In the meantime, with change in the air, or at least on the airwaves, the FCC itself should think of 2008 as a “change year” and itself as a “change agent”. It can and should implement some fundamental reforms. Certainly the communications marketplace is changing at a dizzying pace, and the FCC must keep pace to the extent it can consistent with the current Communications Act if its policies are not to become a deterrent to innovation and investment, and a drag on the nation’s economy. What is really needed to accomplish the task of fundamental reform commensurate with the dynamics of the increasingly competitive marketplace is a much different, transformational communications law like the Digital Age Communications Act (DACA) introduced in December 2005 by Senator Jim DeMint.

Fundamental reform such as DACA, which would substitute the current techno-functional-centric stovepipe regulatory regime with one that ties regulatory activity to the realities of marketplace competition, may have to wait further gestation. You can read more about this fundamental reform in my Federal Communications Law Journal article, Why Stovepipe Regulation No Longer Works: An Essay on the Need for a New Market-Oriented Communications Policy. In the meantime, the FCC itself can take important actions. Here are a few, and I’ll be saying much more about these and others as we go along this year:

· The agency should move forward with universal service reform. This bloated subsidy system needs fixing to reduce what is, in effect, a 10% tax all telecom users now pay to provide untargeted subsidies. These untargeted subsidies are wasteful, and they distort competition and impede innovation. The Commission should permanently cap the existing high-cost fund, stop basing subsidies to wireless carriers on the “identical support” received by incumbent wireline carriers even if their costs are less, and adopt “reverse auctions” as a means of determining which provider can serve designated areas on the least costly basis. (You can read more here.)

· The agency should return in a serious way to a consistent deregulatory broadband policy. In 2002, the Commission announced that broadband services should exist in a “minimal regulatory environment that protects investment and innovation in a competitive market.” This policy rested on findings that, even then, the broadband marketplace was developing in a competitive fashion, with cross-platform competition the key feature. It is even more so today, with cable, telephone, wireless, and satellite companies competing to provide voice, data, and video services in various packages and configurations. The power companies are sitting on the near sidelines as potential competitors as well. Although the FCC won a hard-fought landmark Supreme Court victory in 2005 in the Brand X case upholding its authority to implement its deregulatory broadband policy, the agency, in the past year or so, nevertheless mistakenly and too frequently has strayed from the policy of minimal broadband regulation. The imposition of a net neutrality “open access” mandate for 700 MHz spectrum is one example. Chairman Martin’s initiatives in favor of increased cable regulation, such as various anti-bundling regulations, are another. After all, today’s “cable” firms are broadband providers. The Commission as a body needs to get back on course with a consistent deregulatory broadband policy, rejecting calls for unbundling and net neutrality regulations. Integral to this effort, the Chairman and Commissioners must begin consistently thinking of the former telephone, cable, satellite, and wireless companies as broadband companies in competition with one another. It is true, of course, that such competition is more or less vigorous, depending on the discrete application or service. But it is important to understand that the marketplace has changed in this fundamental way.

· In line with the above point, as an institutional matter, the FCC should implement an organizational reform that creates a Broadband Services bureau that combines the current Media, Wireline, and Wireless bureaus. Many functions performed by the individual bureaus, such as information-gathering, policy analysis, and regulatory review, ought to be able to be performed more efficiently in a single Broadband bureau with a unified, slimmed-down staff. I understand that some legacy regulatory activities from the various “industry” bureaus are stand-alone, and that, at least for now, eliminating the individual bureaus won’t eliminate these activities. But having a Broadband bureau under unified staff leadership should help focus the agency on the marketplace reality that most wireline, wireless, and cable services are broadband, and the companies in the formerly distinct segments now compete against each other. Hopefully, having such a unified bureau, would lead to a more consistent deregulatory broadband policy.

· The agency should promptly approve the XM-Sirius merger. In an industry a dynamic as communications, absent exigent circumstances which don’t appear to exist here, it should not take a year for the FCC (or the Justice Department, for that matter) to determine whether a proposed merger should be approved. There is much that can be done to improve the FCC’s merger approval process, some of which would require statutory changes. For a more on this, see my articles, “Reform the Process” and “Any Volunteers?” Because I consider satellite radio part of a broader audio information and entertainment market that includes terrestrial broadcast stations, wireless audio services, iPods, MP3 players and similar devices, and the Internet, FCC approval of the merger would indicate an appreciation of the dynamic and competitive nature of the communications marketplace. Most importantly for present reform purposes, the agency should exercise self-restraint and eschew imposing last minute “voluntary” conditions unless they are truly necessary to prevent demonstrable competitive harm that the Commission explains on a reasoned basis. The Commission ought to flat-out stop using the merger review process as a forum for imposing company-specific regulation that is better considered, if at all, in industry-wide generic proceedings. The agency doesn’t need an act of Congress to accomplish this change.

There’s that word again—change. I know there are other ideas as well for fundamental reform in communications policy and the way the FCC operates. Again, I will be discussing more of these in the future. And your feedback is always welcome.

So, in the style of the campaign debate moderator, my question to the FCC: Why not seize the change mantle and get started now with reforms such as those suggested above?